After analysing data from the 2022-2024 Medium-Term Expenditure Framework and Fiscal Policy Strategy report, Nigeria lost about N5.16tn to tax reliefs granted on Value Added Tax, Company Income Tax and Petroleum Profit Tax in 2020.
The report said Nigeria lost N4.3tn to reliefs on VAT, consisting of reliefs granted by legislature and compliance burden adding that if all commodities in the Nigerian VAT system were fully taxable, the country would generate about N6tn from the existing tax structure.
According to the Nigerian Bureau of Statistics, VAT yielded only about N1.8tn in 2020, resulting in a tax gap of about N4.3tn.
However, in the MTEF/FSP report, out of the N4.3tn tax gap, about N900bn is attributable to exemptions laid down in legislation, while the remaining N3.4tn is attributable to the compliance gap.
It said, “In most countries, their compliance gap is caused by several factors, including underground economic activity in the informal sector, aggressive tax planning and problems in tax administration.
“However, in Nigeria, some firms, notably in the financial sector, are granted relief from VAT. Because this relief is not set out in the VAT Act it is not captured as a tax expenditure in the current estimates.”
The report said as a result of this, the current estimated loss due to policy gap might be too low and the compliance gap too high.
It said the country lost N457bn to CIT waivers from large tax offices and medium tax offices, compared to the N1.1tn in 2019, representing a decrease of N634bn.
A breakdown of the N457bn CIT waivers shows that “manufacturing accounted for 65 per cent of tax expenditure (N297bn), LTO financials contributed to 15.8 percent of TEs (N72bn) while N440m was from exemption of profits under Section 23 of CIT Act”.
On petroleum profit tax, the report said the sum of N307bn was lost due to waivers granted by the Federal Government within the period under review.